Money flows can inform traders lots concerning the well being of a enterprise by giving visibility into how an organization is doing. Because the saying goes, money is truth, revenue is opinion. Sturdy money reserves supply a level of reassurance that the corporate can distribute and enhance dividends, scale back debt, get by way of downturns and reinvest in its operations. Corporations with a excessive degree of free money move — basically the cash left after essential bills — will usually due to this fact command a premium ranking.
Good underlying money inflows can nonetheless find yourself displaying as damaging free money move in the event that they’re masked by heavy expenditure, however this doesn’t essentially point out a poor funding. Many companies with excessive capex necessities — for instance telecoms operators investing in infrastructure — or making investments to assist development will probably be on this place, however these money outflows ought to increase future returns.
Equally, excessive money balances ought to be assessed by way of how firms deploy them. Airline and vacation operator Jet2, which shored up its money property throughout the pandemic and is now benefiting from pent-up demand for journey, has greater than £2bn of internet money sitting on the stability sheet, of which a small portion is being returned to shareholders by way of a £300mn buyback. Inevitably, it’s going to face important future expenditure on new plane, and after the turbulence and crises of latest years, having these reserves bolsters the corporate’s resilience.
In distinction, Elixirr, the bold challenger consultancy enterprise, additionally boasts sturdy money technology, however faces no such capex calls for on its money — it’s primarily a individuals enterprise. It’s been utilizing money successfully on acquisitions, together with final yr’s addition of US-based technique agency Speculation, which counts 5 Magnificent Seven firms amongst its shopper base, and appears to be in a superb place to proceed investing in expertise and M&A.
BUY: Elixirr Worldwide (ELIX)
The “challenger” boutique consultancy is prospering, writes Valeria Martinez.
Final yr was record-breaking for Elixirr Worldwide. The Purpose-traded consultancy posted all-time-high revenues and now plans a transfer to the principle market, a step that might broaden its investor pool and open the door to FTSE 250 inclusion.
Whereas world consulting giants comparable to Accenture and Capgemini grapple with slower shopper spending, undertaking delays and tighter charges, the so-called “challenger” guide is prospering. Elixirr grew natural revenues by 13 per cent, with M&A serving to push complete revenues to greater than £111mn.
New purchasers added £11.4mn to the corporate’s top-line development, with £9.7mn coming from present ones. The technique is to squeeze extra from its companion base, with income per companion up 6 per cent. The variety of purchasers spending greater than £1mn rose to 27, and the agency has additionally been busy poaching new companions.
A key deal was the acquisition of Los Angeles-based insights agency Speculation, which suggests greater than half of gross sales now come from the US market. A brand new £45mn debt facility will assist extra acquisitions, with dealmaking anticipated to turn out to be an even bigger a part of the expansion story.
Margins dipped barely following the Speculation deal, however profitability nonetheless improved strongly. Adjusted Ebitda rose 23 per cent to £31.2mn, whereas free money move jumped by 74 per cent to £28.1mn, serving to fund a 20 per cent dividend enhance.
Elixirr’s shares are up 17 per cent over the previous yr, however they nonetheless commerce on a ahead worth/earnings ratio of simply 13.8 occasions, a reduction to their five-year common. The group made no reference to US tariffs in its outlook, however with report revenues already booked within the first quarter, momentum seems sturdy. Joint home dealer Cavendish is optimistic that upgrades could possibly be coming.
SELL: Mobico (MCG)
Buyers will welcome a management reset on the Nationwide Specific proprietor, writes Valeria Martinez.
Mobico’s chief government Ignacio Garat and the board of the Nationwide Specific proprietor have parted methods. Chair designate and former chief government Phil White succeeded him on an interim foundation from Might 1.
In a transfer first floated in October 2023, the group not too long ago agreed to promote its US yellow college bus arm for an enterprise worth of as much as $608mn (£453mn). Peel Hunt analyst Alexander Paterson referred to as it a “shockingly dangerous” deal.
However the firm’s 2024 outcomes additionally confirmed the necessity for an pressing reset. The corporate reported a statutory post-tax lack of £794mn for 2024, pushed by a writedown on the worth of the college bus enterprise, tax asset write-offs and the next provision for lossmaking rail contracts in Germany.
Adjusted working earnings rose 11.3 per cent to £188mn, touchdown on the backside finish of steerage, with a 5.5 per cent margin. Structural points in Germany’s rail business and cussed weak spot within the UK weighed on the outcomes, though Spanish subsidiary ALSA was nonetheless the intense spot with report revenues.
Mobico has confronted a grinding restoration after the pandemic, with driver shortages, price inflation and underperforming contracts forcing a significant restructuring. In consequence, adjusted internet debt has ballooned to greater than £1.2bn, with a year-end covenant gearing ratio of two.8 occasions Ebitda.
The varsity bus sale ought to scale back covenant internet debt by $365mn to $385mn, and the group says additional (undisclosed) deleveraging choices are on the desk, together with price financial savings. The deal does clear some uncertainty, nevertheless it’s removed from a win and leaves questions over whether or not Mobico’s monetary well being can actually flip a nook.
HOLD: Warpaint London (W7L)
The branded cosmetics vendor seems to outperform the market, writes Julian Hofmann.
Promoting cosmetics isn’t any simple enterprise, with a number of big-name competitors and a dependence on shopper spending making for a typically unstable market. Nonetheless, it’s one which Warpaint London appears to have negotiated with some ability after delivering a robust end to its full yr and elevating its dividend by greater than a fifth.
Natural margin growth appears to have been the key behind the outcomes, with the corporate’s acquisition of Model Architekts falling too late for the reporting interval. An across-the-board rise in gross sales and earnings, mixed with secure prices, meant that gross margins elevated to 41.2 per cent (2023: 39.9 per cent).
Administration stated Europe, the place there’s room for development, continues to be a main market. In these outcomes, European gross sales elevated by 22 per cent to £54.7mn as the corporate’s merchandise — which embody the W7 and Technics make-up manufacturers — had been rolled out throughout extra areas. One of many extra important offers was with Italian retailer Tigota, which launched Warpaint merchandise throughout 200 retailers in Italy. The UK market, led by the likes of Superdrug, was additionally key to the outcomes, and gross sales right here had been up by 8 per cent to £35mn.
Warpaint’s publicity to the US has been a supply of concern since President Trump’s bulletins on tariffs. At £8.7mn, nonetheless, the corporate’s US publicity is proscribed — though income development is excessive at 19 per cent. Administration believes it could possibly proceed to develop gross sales within the nation regardless of the brand new tariff regime.
Warpaint’s shares have fallen again a bit this yr, partly on commerce worries, and this values them at a consensus ahead worth/earnings ratio of 14.5. That’s slowly trying like higher worth, however we stay cautious.
